U.S. banks had second-best earnings ever in 2012, FDIC says

U.S. banks had $141.3 billion in net income last year, the second-best on record behind the $145.2 billion total reported for 2006, on non-interest income and lower loss provisions, the Federal Deposit Insurance Corp. said.

Fourth-quarter net income was $34.7 billion, a 37% increase from the year-earlier period, the FDIC said today in its Quarterly Banking Profile. The total for the three-month period that ended Dec. 31 was a decline from $37.6 billion in the third quarter, the FDIC said.

Industry profits were widespread with 60% of banks reporting increases from the prior year even as interest-income margins tightened, according to the agency’s report. Lenders set aside $15.1 billion for bad loans -- a 24.6% reduction from the year earlier -- and the $18.6 billion in charge-offs marked the 10th consecutive quarter of declines.

“When you look back to where we were just a few years ago, the progress made to date is meaningful,” FDIC Chairman Martin Gruenberg said today in a briefing on the report. “But troubled loans, problem banks and bank failures remain at elevated levels, while growth in lending and revenue remains sluggish.”

Banks bolstered profits by using reductions in money set aside for bad loans as the Federal Reserve’s low interest rate policy squeezed margins. Fourth-quarter loan-loss provisions were the smallest since 2006, according to the report.

Total loan balances rose $118.2 billion, or 1.6%, in the quarter, led by 3.7% growth in commercial loans, according to the FDIC.

“There’s not a lot of great opportunities out there at these rates,” American Bankers Association Chief Economist James Chessen said today in reference to the interest rate environment. Business-lending demand is showing recovery and “you’ll start to see more consumer lending,” he said.

Deposit growth increased by a record $313.1 billion in the fourth quarter even as the FDIC wound down unlimited backing for so-called transaction accounts, according to the report. Deposits in such accounts, used for payrolls and other business and government expenses, rose by 3.3%, the FDIC said.

“It appears that the transition from temporary full insurance to the basic $250,000 coverage proceeded in an orderly manner,” Gruenberg said.

‘Problem’ Banks

The FDIC’s confidential list of “problem” banks -- those among the more than 7,000 insured institutions deemed to be at greater risk of collapse -- fell to 651 from 694 in the fourth quarter, the smallest since before the 2008 credit crisis. In 2012, 51 banks failed, compared with 92 in 2011.

The agency’s deposit insurance fund, which protects customer accounts of as much as $250,000 against bank failures, rose to $33 billion from $25.2 billion in the third quarter, the FDIC said. Bank assessments were increased to replenish the fund, which fell into deficit as the agency resolved hundreds of bank failures stemming from the subprime mortgage crisis.

Investors have pushed the 24-company KBW Bank Index up by more than 3 percent this year.